Long way to go as top 9 realtors’net dips 76%

Long way to go as top 9 realtors’net dips 76%
The Economic Times, August 6, 2009, Page 5

Subsidy On Affordable Housing Loans May Help Sector, But Possible Price War May Turn Things Worse

Sanjeev Choudhary NEW DELHI

INDIA’S struggling realty industry may have sprouted some green shoots of late, but the top nine listed real estate firms posted a 76% dip in profit and 57% fall in sales in the June quarter, prompting the segment leader to observe that the industry is not “completely out of the woods”.

Analysts said the revival in demand could improve things, especially in light of a government subsidy for loans taken for affordable housing, but warned that a possible price war between players sitting on huge inventories could spoil the scene. “The recovery of the sector will depend a lot on the sustenance of demand,” said Shailesh Kanani, a real estate analyst with Angel Broking.

Rupesh Sankhe, another real estate analyst with Centrum Broking, felt low-priced homes will continue to drive up demand, even though it may not be, “anywhere close to what we saw in 2006 and 2007”.

DLF, India’s largest listed real estate developer, sold 2.5 million sqft of home space in Delhi and Bangalore in June quarter and wants to launch another 16 million sqft of residential space this fiscal. DLF reported a 79% decline in profit and 57% slide in sales for the June quarter.

“There has been a reasonable revival in demand for homes not just in low-cost or mid-income, but also for high-end,” DLF vicechairman Rajiv Singh told an analyst conference call on Friday.

His immediate competitor, Unitech, reported 63% decline in profit with sales down by half.

“Property prices have come down and so has the interest rate. That’s why home buyers are again looking at the property market,” said R Nagraju, head of corporate planning at Unitech. The firm is targeting to sell a total of 30 million sqft of space this fiscal.

Other realty players Indiabulls Real Estate, Parsvnath, Omaxe, HDIL, Akruti, Sobha and Purvankara too have reported decline in profits up to 95% for the June quarter. Parsvnath chairman Pradeep Jain said the worst was over for the sector and demand had started picking up. But the pick-up in demand hasn’t really erased all concerns as DLF’s Rajiv Singh said the sector was still not “completely out of the woods.” Much of the new bookings received in residential projects have been in what developers call ‘affordable’ category or homes priced between Rs 20-35 lakh. Encouraged by the response, more developers are readying to launch homes in this segment. The tax benefits announced recently by the government for smaller homes is likely to act as additional incentive for projects in the category. “Supply is likely to increase faster than the demand in the residential market, as many developers, who had been postponing their launches for a long time are now launching new projects,” says another analyst with a Mumbai-based brokerage firm, who didn’t want to be named. He says prices may correct further as new supplies hit the market.

Mr Sankhe of Centrum believes the scope for price correction in low-price segment is limited, but high-end homes can still see property prices drop at least 10%.

Some developers such as HDIL and privately held Lodha developers have claimed that prices have already started firming up in Mumbai. But analysts as well as some developers, including DLF and Unitech, say price hike would hit demand and not be good for the sector at this stage.